The Need for Environmental Due Diligence – Part 2

Last week’s blog looked at the importance of Environmental Due Diligence and the environmental risks associated with commercial property. This week’s blog focuses on deploying Environmental Due Diligence and the cost of inadequacy.

Deploying Environmental Due Diligence

Any Environmental Due Diligence Audit puts a focus on three main areas:

1. An assessment of environmental legal compliance;
2. Identification of barriers to growth; and
3. A determination of clean up liabilities and costs.

The scope of an audit will initially begin with meetings with key personnel within the organisation and then will progress to a full site tour and inspection. If an organisation has multiple sites, then a representative sample will be inspected, taking into account location and on-site activities. From here, a review of key environmental documentation and data is conducted allowing for the creation of a findings report. Although audits vary depending on the size of the organisation in question, and often on the industry the organisation operates in, there are several key areas to be assessed. Emissions to air, land and water are of course an important area of concern, as is on site waste management. Storage of chemicals and oils is also reviewed, as well as statutory nuisances such as noise and odour. Finally any ozone depleting substances kept or manufactured on-site will be considered. If any pollution has been identified, this process will conclude with an estimation of any clean-up costs required to return the land back to its original state.

The Cost of Inadequacy

Initial liabilities and costs are usually financial. When an organisation pollutes or operates illegally they will receive a fine for their actions and will also be ordered to pay any clean up or administrative costs associated with the case. There are different regulatory bodies responsible for enforcing environmental legislation for each of the countries in the United Kingdom. For example, in England this is the responsibility of the Environment Agency, whereas in Scotland compliance is enforced by the Scottish Environmental Protection Agency. A court hearing isn’t required to allocate fines, but if a hearing does take place then in a Magistrates Court fines may be modest at up to five thousand pounds, but are unlimited in a Crown Court. In some cases organisations are fined hundreds of thousands of pounds for polluting. As well as fines, those individuals held accountable for the non-compliance may be subject to custodial sentences. This of course, only occurs in more severe cases. Other costs may occur due to business closure or production shutdown while pollution clean-up takes place, or until compliance targets are met. It is also worth mentioning that all court fines are made public. This of course, is potentially damaging for a company’s brand image and acts as a source of bad PR. Although not present as immediate financial costs, brand devaluation and a tarnished reputation are likely to have a negative effect on the organisation in the long term.

There is a lot to think about as far as Environmental Due Diligence is concerned. What experience have you had?